The Morning Update

The USD steadies, oil prices rally, equity markets are down, and US yields are mixed as risk sentiment wanes. The U.S. dollar steadied, holding its ground as uncertainty around potential ceasefire talks supported safe-haven demand. Financial markets adopted a cautious stance early Thursday as hopes of an end to the conflict in the Middle East waned, underpinning the greenback. With geopolitical risks lingering, investors remain defensive ahead of key economic data and policy signals. Global equities fell sharply, with markets across the U.S., Europe and Asia all under pressure as doubts over a Middle East ceasefire intensified risk aversion. U.S. futures declined while European stocks snapped recent gains and Asian tech shares weakened, highlighting broad-based selling. Rising oil prices and renewed inflation concerns added to the negative tone, pushing investors away from risk assets and driving a synchronized global equity pullback. Elsewhere, Oil prices rallied on escalating geopolitical tensions and supply concerns, lifting energy markets. Meanwhile, gold and Bitcoin moved lower as higher yields and cautious sentiment weighed on demand. This divergence reflects a shift toward inflation-sensitive assets while investors scale back exposure to traditional and digital havens. While the primary focus remains on developments in the Iran US conflict, markets are also monitoring the U.S. economic calendar. Weekly Initial Jobless Claims, a timely gauge of labor market conditions, are due later today, alongside speeches from several Federal Reserve policymakers that could offer further insight into the policy outlook.

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In the news. Clash over US-Iran peace talks leaves war's end unclear. Russia sending drones to Iran, western intelligence says. Carlyle and KKR to build to data centres for US Army at a cost of $2bn each. Iraq's economy teeters as oil sales collapse due to Iran war. Israel strikes Iran while Gulf countries intercept drones. The WTO risks sliding into irrelevance. EU trade commissioner warns. Democrats' Midterms prospects undercut by donors who say 2024 cash 'went up in smoke'. Iran wants Lebanon included in any ceasefire talks. Netanyahu seeks to avoid snap vote as Iran war gives no boost in polls.

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In currency markets. Currency markets were largely steady, with the U.S. dollar holding near recent levels as investors assessed mixed economic signals and central bank guidance. Trading remained range-bound as markets stayed cautious ahead of key data releases and ongoing geopolitical developments. CNY & Asian currencies on average slip 0.1% against the USD. Trading currencies are mixed, with KWD weakening 0.4%, MXN, NZD, SEK, NOK, ZAR & PLN falling 0.2%, CZK, AUD & JPY down 0.1%, and CHF & DKK flat against the USD.

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In commodity markets. Oil prices rally 3.7%. Natural Gas & Soybean prices up 0.1%. Gold weakens 2.9%. Silver prices tumble 5.9%. Copper prices retreat 0.8%. Coffee prices ease 0.6% and Soybean prices are flat.

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CAD continues to come under selling pressure, breaching 1.3800 and testing fresh multi-month lows despite surging oil prices. Broader U.S. dollar strength and ongoing geopolitical uncertainty have kept the loonie on the defensive, with risk sentiment outweighing commodity support. With no key Canadian data releases, focus remains squarely on developments in the Iran US conflict to drive near-term direction.

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EURCAD edged higher, with the euro gaining modest ground but holding below the key 1.6000 level as broader market caution persisted. Diverging central bank outlooks have supported the move, with the ECB adopting a relatively hawkish stance while the Bank of Canada is expected to take a more cautious approach to future rate hikes, keeping EUR/CAD biased to the upside.

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EUR traded cautiously above 1.1550, with the pair struggling as the U.S. dollar held firm amid uncertainty surrounding potential US Iran ceasefire talks. Conflicting headlines and escalating tensions have kept markets defensive, supporting safe haven flows into the greenback despite a relatively firm ECB outlook. With risk sentiment dominating, attention also turns to jobless claims, a flurry of Fed speakers and ongoing geopolitical developments for near-term direction.

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GBPEUR traded flat in early trading, with the pound holding steady as both currencies remained weighed by broader risk aversion. Sterling has drawn some support from persistent UK inflation, which is reinforcing expectations that the Bank of England may need to deliver further rate hikes. However, hawkish ECB commentary, including signals that additional tightening remains on the table, has helped underpin the euro, keeping the cross range bound.

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GBP holds steady, straddling the 1.3350 level as GBP/USD traded within a narrow range amid persistent Middle East tensions and a firm U.S. dollar. Ongoing geopolitical uncertainty has supported safe haven demand for the greenback, limiting upside despite a relatively firm UK inflation backdrop and hawkish Bank of England expectations. With risk sentiment dominating, near term direction remains tied to geopolitical developments and U.S. data, including jobless claims.

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